It's pretty tough to beat 'home-cooked' contracting

Infotech and the Law | Legal insights for today's market

By Richard Rector

Mar 23, 2007

"It is hard to imagine that these laws will disappear anytime soon." Richard Rector

Everyone loves home cooking. It could be your mother's potato salad, your uncle's barbecued ribs or even your own three-egg deluxe omelette. But there's something special about the things we make at home.

To many people, home cooking in the procurement world means "Buy American" laws that protect U.S. suppliers in federal procurement. However, many states also have domestic-preference and domestic-source laws that limit the acquisition of foreign supplies and services.

The word "foreign" has a different meaning at the state level, however. It includes both non-U.S. items and items that are produced outside the state. Thus, contractors must pay special attention to the source terms in state solicitations and contracts, because those provisions can present both competitive challenges and opportunities.

Home-cooking laws vary based on a variety of factors: the item being acquired, the source of the procurement funds, the size of the acquisition, the residency of the contractor, the location of the contract work, the laws of a contractor's home state and the law of the state conducting the acquisition.

A majority of states have laws that create an evaluative preference for items produced in the state. These domestic-preference laws do not bar state agencies from acquiring out-of-state items; rather, they discriminate in favor of items produced in the state.

These domestic-preference laws take different forms. Some of them, called tie-breaking laws, mandate that in-state contractors will be favored over out-of-state contractors in the event of equally evaluated bids or proposals.

Michigan law, for example, provides that, in all purchases made by state agencies, "all other things being equal, preference shall be given to products or services manufactured by Michigan-based firms, if consistent with federal statutes."

At least 30 states have tie-breaking laws that apply to competitive bids or proposals. In some states, the laws apply only to contractors that have their headquarters in the state. Other states have laws that apply to goods and services that are manufactured or produced in the state, regardless of where the contractor's home office is located.

About half of the states also have evaluative preference laws. These laws provide a preference to in-state firms by favorably adjusting price or technical evaluations of local firms, thereby allowing a less-qualified or higher-priced local firm to prevail over an out-of-state competitor.

For example, in South Carolina, the law provides that a "preference of 7 percent must be provided to vendors who are residents of South Carolina or whose products are made, manufactured or grown in South Carolina." Similarly, in Alaska, in-state bidders receive a 5 percent pricing preference, and product-specific preferences for certain homegrown items.

Some states apply preferences only to specific types of goods or services. Not surprisingly, preferences are awarded most frequently to protect staples of the local economy, such as software development services, insurance contracts, agricultural products, beef, boats and ships, coal, steel, timber products and natural gas.

A number of states do not impose preference laws themselves but penalize contractors from states that do apply in-state preference laws. These "reciprocal preference" states apply the same domestic-preference rules to contractors from another state to which their own companies would be subject when competing for contracts in that state.

There are good arguments against this type of protectionism in public procurement, as well as an obvious tension between domestic-preference laws and the concept of free trade. But it is hard to imagine that these laws will disappear anytime soon.Because even when it's quirky, and even when it's not good for us, too many of us love home cooking.

Richard Rector is chairman of the Government Contracts practice at DLA Piper US LLP. He can be reached at richard.rector@dlapiper.com.